Replacing your old home loan can have a major impact on your finances for many years to come. While it’s generally a great idea to refinance a loan when the mortgage rates are low, many different variables must be taken into consideration to help decide if now is the right time to refinance. Before you sign any paperwork, here is a closer look at a few tips that will help you find the best rates with the right company.
The Break-Even Point
This phrase is used to describe the amount of time that it will take before the cost of the new loan is recaptured through the lower monthly payments. There is no set amount of time that every homeowner will agree on, but many specialists believe that refinancing should pay for itself within two to four years. Those who qualify for a low or no-cost refinance will hit the break-even point almost immediately. If your break-even point is within close sight, then it's a good time to refinance your mortgage loan.
A Look At Your Credit Score
If your credit score is looking good, that's a good sign that it's prime time to refinance. Just like any other loan you apply for, your refinancing rates are highly dependent on your credit score. Those who do not have stellar credit might not qualify for the best rates. Every lender is slightly different, but most want to see a credit score of around 720 in order to qualify for the lowest rates possible. Other factors such as your liquid assets and cosigners will factor into their decision as well.
Working With The Right Lender
Instead of utilizing a mortgage broker, many homeowners prefer to work with mortgage bankers. Unlike brokers, bankers actually invest their own money when they approve a loan. That means they will do everything in their power to ensure that the loan is paid back in a timely manner. The professionals who you work with should also be dedicated to world-class customer service so that you have access to support whenever you need it.
Changes To Your Taxes
Another variable that many people never consider is their tax rates. Homeowners often rely on their mortgage interest reductions to keep their federal taxes reasonable. Any changes that you make to your mortgage payments will have an impact on your taxes. When you meet with your lender, like the professionals at Assurance Financial Group, you should ask about how the taxes will alter your break-even point and what can be done to keep them from skyrocketing.
Restructuring or replacing an old home loan could be one of the biggest financial decisions you ever make, and that is why this process should never be taken lightly. Spending a little extra time to research all of your options could potentially save you tens of thousands of dollars in the coming years.
This guest post is written by Emma Sturgis a freelance writer based in Boston, MA. When not writing, she enjoys rock climbing and reading. Say hi on Twitter @EmmaSturgis2